S Corporation: S Corp Income/Loss & Distributions
Quick answer
An S corporation generally pays no entity-level income tax. Income, losses and deductions pass through on Schedule K-1 (IRC §1366) and adjust stock basis (§1367). Losses are deductible only up to stock basis plus direct shareholder loans, with excess suspended. Distributions are generally tax-free up to basis, with AAA ordering when prior C corporation earnings exist (§1368).
S Corp Income/Loss & Distributions is tested on EA Exam Part 2 (Business Entities). Primary IRS reference: IRC §1366.
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About this EA exam topic
S corporation income, loss, and distribution questions test pass-through taxation, shareholder basis, and the accumulated adjustments account (AAA). Income and loss flow through on Schedule K-1 and adjust shareholder stock basis.
The EA exam tests the basis-and-at-risk limits on deducting losses and the ordering of distributions against AAA. Distributions are generally tax-free to the extent of stock basis.
What you'll be tested on
- Pass-through of income/loss and shareholder basis adjustments
- Loss limits: stock basis plus direct shareholder loans
- AAA and distribution ordering
- Tax-free distributions to the extent of basis
How to prepare
- Track stock basis and debt basis separately for loss limits.
- Use AAA ordering for distributions of an S corp with prior C-corp E&P.
- Suspended losses carry forward until basis is restored.
Practice questions for S Corp Income/Loss & Distributions
What this topic covers
S Corp Income/Loss & Distributions appears in Part 2: Business Taxation within the Business Entities domain. VantageEA practice questions focus on how s corporation rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRC §1366, IRC §1367, IRC §1368. This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include s-corp, basis, distributions, pass-through.
Frequently asked questions
Are S corp distributions taxable?
Generally tax-free to the extent of stock basis; the AAA ordering matters when prior C-corp earnings exist.
Which part?
Part 2 (Businesses).
Reference?
Form 1120-S instructions.
Continue studying
More Business Entities topics from Part 2
C Corporation: C Corp Formation (Sec 351) & Basis
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C Corporation: Corporate Income Tax & Dividends
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Partnership: Partner Basis & K-1 Allocation
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Partnership: Partnership Distributions
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Partnership: Partnership Formation & Contributions
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S Corporation: S Corp Election & Termination
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